What is a Reverse Mortgage and How Does It Work?

What is a Reverse Mortgage and How Does It Work?If you’ve recently considered your options for taking some of the equity out of your home you may have heard about reverse mortgage loans. If you meet the requirements for a reverse mortgage it can be an excellent way to tap into the value of your home, freeing up that cash to be reinvested or used for other purposes.

In today’s blog post we’ll explore reverse mortgage loans, explaining how they work and whether or not you’re qualified to receive one.

How Does a Reverse Mortgage Work?

As the name implies, a reverse mortgage is the opposite of a traditional or “forward” mortgage in which you borrow a lump sum of money from a lender to buy a home, paying it back to them over time. With a “reverse” mortgage, instead of paying the lender you will receive money from them which does not have to be repaid until you are either no longer using that house or condo as your primary home or until you fail to meet the obligations of the mortgage contract.

Note that a reverse mortgage is still a loan, which means you will still be required to pay interest on it. As your loan balance increases with principal and interest each month the amount of equity you have in your home will decrease accordingly.

Do I Qualify for a Reverse Mortgage?

According to the federal Consumer Financial Protection Bureau, there are a number of requirements that you must meet in order to qualify for a reverse mortgage. You must be at least 62 years of age when you apply, the home you’re applying with must be your primary residence, and most or all of your outstanding mortgage debt on the home must be paid off.

If you still owe money on your original or second mortgage against the home note that part of the money from the reverse mortgage must be used to pay this debt off.

How Much Can I Borrow in a Reverse Mortgage?

Like any type of loan, the amount of money that you can receive with a reverse mortgage depends on a variety of factors. Your age, the value of your home, any outstanding mortgage debt, current interest rates and Federal Housing Administration requirements will all be taken into consideration when determining how much you will qualify for.

While a reverse mortgage isn’t terribly complex, there is certainly more to the process that can be covered in a single blog post. For more information, contact us today and we can share the specifics of how you might qualify for a reverse mortgage and whether or not it’s your best option for making use of some of your home equity.

Understanding the Principal Limit on a Reverse Mortgage and What Happens if You Reach It

Understanding the Principal Limit on a Reverse Mortgage and What Happens if You Reach ItIf you’re considering applying for a reverse mortgage, you’ll want to ensure you understand certain critical factors. One such factor is the principal limit. The principal limit will have a strong influence on your finances, which is why you’ll need to ensure you know – before applying for your reverse mortgage – what your principal limit is.

So how does a principal limit work, and how can you find out what yours is? Here’s what you need to know.

Principal Limit: The Maximum Amount You Can Borrow

Simply put, the principal limit is the maximum amount of money that you can borrow using a reverse mortgage. This maximum amount does not change if you pay off your reverse mortgage and then apply for a second one – rather, it’s a lifetime maximum that is calculated per-borrower. The principal limit is nationally legislated through the Federal Department of Housing and Urban Development.

Calculating Your Principal Limit Factor

Calculating your principal limit factor is fairly simple. The Department of Housing and Urban Development maintains a chart that shows you what your principal limit factor is. To look up your principal limit factor, all you need are your expected rate and the age of the youngest spouse in the home.

The principal limit factor is useful in determining what kind of a loan you can get. The size of the loan you can expect to receive is equal to your home’s value multiplied by the principal limit factor.

For example, a 72-year-old who owns a $300,000 home with a 10-year interest rate of 3% and a lender margin of 3% has a 6% “effective rate”. According to the table, a 72-year-old with a 6% effective rate will have a principal limit factor of 46.7%. That means the most this borrower can receive through a reverse mortgage is $140,100 – which is 46.7% of $300,000.

What Happens If You Reach The Principal Limit?

If you reach your principal limit, you will have exhausted all of the money available to you through a reverse mortgage – you will have used up all of your equity. A reverse mortgage is a non-recourse loan, which means your lender cannot pursue you or your heirs to recoup their money. In the event that you choose to sell the property, all of the proceeds will go to the reverse mortgage issuer – none of it goes to the homeowner.

A reverse mortgage can be an effective financial tool, but if you use up all of your equity, it may paint you into a financial corner. An experienced mortgage advisor can help you to determine if a reverse mortgage is an appropriate financing option for you. Contact your trusted mortgage professional today to learn more.

The Quick and Easy Guide to Understanding the Math Behind Your Mortgage Closing Costs

The Quick and Easy Guide to Understanding the Math Behind Your Mortgage Closing CostsIt’s amazing that in a year with extremely low mortgage rates being reported around the country, closing costs are up by as much as 6% from the previous year. Part of the reason for this is that the stricter regulations on loans have increased the costs to banks, and they always find a way to pass on new costs to the consumer.

Understanding Third-Party Closing Costs

When closing on a mortgage the borrower will notice a long list of additional fees that they are expected to pay for. These can range from insignificant into the thousands of dollars depending on the state and the deal. When looking at these fees you will notice that some are third-party fees.

This is not out of the ordinary and you are not being taken advantage of. These costs are for services rendered by outside companies at the request of the mortgage lender to make sure everything is in order with the property.

Closing Costs You Can Expect To Pay

Anybody going through the mortgage process for the first time should expect to see several odd sounding terms on the bill. The first is ‘origination’ or ‘processing’ which is the primary fee the lender charges for creating the mortgage.

Other fees include discount points, flood certification, title insurance, credit report and appraisal. These are all necessary for buying a home and should be expected to appear when closing.

The Trick Behind Zero-Closing Cost Mortgages

With closing fees adding up it may seem like a good idea to opt for a mortgage that has absolutely no closing costs if it’s offered. While no money will be required up front, it adds up in the long run.

This is because the lender is making a deal. They agree to pay all the closing costs for the borrower in exchange for a slightly higher interest rate, which will pay out for them over the course of the mortgage.

The amount you can expect to pay really depends on the cost of living and real estate market where you’re buying. A mortgage specialist will be able to talk to you in advance of applying for your mortgage to give you a better idea of what you are looking at paying for closing costs. Contact one today for more information on why you have to pay closing fees and the amount you should be budgeting for.

3 Reasons You Should Trust in a Mortgage Advisor Instead of Trying to Predict Rates

3 Reasons You Should Trust in a Mortgage Advisor Instead of Trying to Predict RatesIf the time has come to purchase a home and you’ve been perusing the real estate market, it’s possible you’ve also been considering the mortgage options that might work best for you. In the event that you’re already spending a lot of time looking at homes and trying to sell your own, here are a few reasons you may want to leave your mortgage considerations to a professional.

Qualifications You Can Count On

If you’re new to the world of home purchasing and have concerns about learning the ropes on your own, a mortgage advisor can be a great way to navigate the market and get the information you need without having to do all of the legwork. Because a mortgage advisor has to have the necessary qualifications to give you advice, they’ll be able to guide you through available options so you can find the product that is best suited for your financial situation.

A Knowledgeable Expert On Your Side

Between putting in offers on a home and dealing with lenders, it can often feel like you’re between a rock and a hard place, and getting squeezed financially. However, the ideal mortgage advisor will be someone who is there solely to assist you and provide you with viable options. Instead of a very specific set of options provided by the bank, an advisor will be able to identify products your lender might not suggest, which means you’ll have more options and a representative who will be able to recommend the best ones for you.

The Inside Scoop On The Industry

It’s the job of a mortgage advisor to be on top of the market, have a comprehensive knowledge of the products out there and be familiar with the lenders, so this means less research and a lot more expertise for you when it comes to any final mortgage decisions. Not only will they have the know-how in the industry you’re heading into, they’ll be aware of the information the lender requires and may be able to score you a better deal when the time to make a decision comes.

Finding the ideal lender for your mortgage can be a struggle in times where there are so many small details to deal with, but a mortgage advisor can work to simplify the process. If you’ll soon be applying for a mortgage and are considering your lender options, you may want to contact one of your local mortgage professionals for more information.

How Much Should You Budget for Closing Costs? Let’s Take a Look

How Much Should You Budget for Closing Costs? Let's Take a LookIf you’re in the market for a new home, you’re probably trying to budget for all of the expenses that come with a home purchase. After all, the asking price isn’t necessarily the entire amount that you’ll pay – there are other expenses that will factor in to the final price. One such expense is your closing costs.

Closing costs are the miscellaneous fees you’ll pay when you sign the deal to buy your home. But how much do you need to save up for closing costs? Here’s what you need to know.

The General Guideline for What to Expect

Most mortgage advisors will tell you that you should expect to pay about 3 to 5 percent of your mortgage in closing costs. By law, your mortgage provider is obligated to give you a Loan Estimate form which is designed to help you understand the key features, costs, and risks of the mortgage loan. Three business days before the loan closes your mortgage provider will also give you a Closing Estimate form to review all of the costs of the transaction including all closing costs.

How Your Closing Costs Break Down

Your lender will give you a breakdown of costs in your Loan Estimate and Closing Estimate. But in general, there are certain closing costs you can expect to pay.

One cost that most lenders include is the loan origination fee, a small charge to compensate the lender for the time it takes to prepare the initial loan documents. There will also typically be a loan application fee, which can vary per lender.

Your lender may require you to get private mortgage insurance depending on your situation. The title search and title insurance to protect your lender from title fraud is another fee you should consider, and you’ll also likely want to buy title insurance to protect yourself.

There are also several other closing costs to keep in mind, like escrow fees, notary fees, pest inspections, underwriting fees, and the mortgage broker’s commission. All in all, you’ll want to budget approximately $5,000 in closing costs for every $100,000 you borrow.

Closing costs can be quite expensive, which is why you’ll want to make sure you budget appropriately when you buy your new home. A mortgage professional can help you to figure out how much you need to budget for closing costs. Call your local mortgage advisor today to learn more about budgeting for the home buying process.

FHA Streamline Refinance Mortgage Loan Program

 FHA Streamline Refinance Mortgage Loan ProgramRefinancing a home loan can provide numerous benefits, but it can also seem daunting and intimidating to some. Many homeowners would love to lower their interest rate or take advantage of other benefits associated with refinancing, but they are concerned about the time and expense associated with refinancing their current mortgage. The FHA Streamline Refinance loan program is designed to provide those who currently have an FHA loan with an easier way to refinance their mortgage, and this may be a desirable option for many.

No Appraisal Needed

One common complaint that people have when applying for refinancing relates to the expenses and time, and the appraisal can have a big impact on both of these factors. The good news is that with the FHA Streamline Refinance loan program, there is no requirement for a new appraisal. The home value at the time of the original loan will be used with the refinance loan, and this is truly beneficial for those who are currently underwater with their home value due to decreasing property values.

Lower Interest Rates

With the FHA Streamline Refinance loan program, borrowers can take advantage of today’s interest rates without needing to go through a full refinance process. This loan program is available to those who have a current FHA loan program, and it is a great program for those who have an interest rate that is higher than the current rates to lock in a lower rate and a lower mortgage payment.

Great Loan Terms

As with the traditional FHA loan program, the Streamline program also offers great loan terms. Borrowers can choose between a 15 and 30-year fixed rate loan, and borrowers will not be subject to a prepayment penalty. These loan terms provide borrowers with flexibility when refinancing their loan to take advantage of a lower interest rate.

The FHA Streamline Refinance loan program is just one of several options available to borrowers who are interested in refinancing their current FHA loan program. It offers numerous benefits to homeowners, but it is not the only option available.

It is wise for homeowners who are interested in refinancing their current mortgage to compare all of the options thoroughly before making a decision. It is best to seek assistance from a trusted mortgage professional. They can help with specific information and guidance with the selection of the right a loan program for each homeonwers needs.

Saving Up for Your Down Payment? Try These Money-saving Tips to Speed Things Up

Saving Up for Your Down Payment? Try These Money-saving Tips to Speed Things UpOne of the most significant challenges that many people face when preparing to buy a first home relates to saving money for a down payment. While there are many different loan programs with varying down payment requirements, the fact is that it can still be difficult to save up a large sum of money. Some programs may require you to save as much as 10 percent or 20 percent of the sales price of the home.

You can employ a few different tips and techniques to save money for a down payment more quickly, and these are some of the options that others have successfully used to save money for their home purchase.

Make Saving Automatic

One idea that works well for many people is to make saving for your new home automatic. This may be as simple as scheduling a regular draft or transfer from your checking account when your paycheck is deposited into your savings account. Some employers may even facilitate this process by contributing some of your funds into a savings account on your behalf. With this option, the money would go directly into your savings account without you having a chance to spend it.

Take Advantage of Retirement Accounts

If your employer provides you with the option of investing in an employer-sponsored retirement account, you should take advantage of this option. Many will offer a dollar-for-dollar matching program, and this may essentially double the amount of money that is saved in the account.

More than that, the funds from many retirement accounts may be withdrawn without penalty if they are used for a first-time home purchase. There are some rules and regulations regarding this, so you should research this option more thoroughly.

These are among the two best options for saving money for a down payment for your first home purchase. There are other ideas that you can consider as well. For example, you may borrow from a whole life insurance policy, obtain a gift from a family member or even sell some of your personal belongings that you no longer need or use.

When you combine many of these ideas together, you may be surprised how quickly your down payment fund can grow. You can also speak with a mortgage professional to learn more about the actual amount of money that you may need for the down payment and closing costs.

How to Calculate Your True Cost of Living and Determine How Much Mortgage You Can Afford

How to Calculate Your True Cost of Living and Determine How Much Mortgage You Can AffordA monthly mortgage can seem like enough of a financial responsibility on its own, but there are many factors involved in home ownership that affect its fiscal feasibility. If you’re in the market for a house and are wondering how your income will stack up against the rest of your expenses, here’s how to determine a home cost that’s reasonable for you.

Determine Your Down Payment

Before you start with anything else, you’ll want to determine the amount of money you can put down so you can estimate your monthly payments. The traditional amount for a down payment is 20% of the home’s purchase price, so if you don’t have anything close to this amount it might be worth waiting a little longer so you can minimize your payments and the amount of interest or mortgage insurance you’ll be paying in the long run. Each person’s situation is different, and there may be programs available with less than 20% down. This is an excellent question to pose to your trusted mortgage advisor.

Calculate Your Monthly Budget

If your mortgage cost already seems high, it will definitely be worth carefully calculating your monthly expenditures. Instead of a wild guess, take the time to sit down and calculate what your costs are including food, utilities, transportation and any other monthly necessities. Once you do this, it’s also very important to add any debt repayments you’re making to the mix. The total amount of your estimated mortgage costs, debt payments and living expenses should give you a pretty good sense of if your mortgage is viable in the long term.

Don’t Forget About The Extras

When it comes to purchasing a home, many people envision that they will be eating and sleeping their new home so don’t pay attention to all of the additional costs that can arise with living life. A new home is certainly an exciting, worthwhile financial venture, but ensure you’re realistic about what it entails. If you’re planning to go back to school or have children in the future, you’ll want to add a little bit of extra cushion in your budget so that you don’t have to put your other dreams on hold for the sake of your ideal home.

It can be very exciting to find a home you feel good about, but it’s important before making an offer to realize the amount of house you can afford so you don’t find yourself in a hole down the road. If you’re currently on the market for a new home, contact your trusted mortgage professional for a personal consultation.

Three Tips to Ensure That a Reverse Mortgage Makes Sense for Your Financial Situation

Three Tips to Ensure That a Reverse Mortgage Makes Sense for Your Financial SituationIf you’re having financial troubles, or if you need to free up a large sum in a short period of time, a reverse mortgage is a great way to get the money you need without having to take on new debt or make monthly payments. When you apply for a reverse mortgage – also known as a home equity conversion mortgage – you’re essentially borrowing money from the equity you’ve built up in your house. The great advantages of a reverse mortgage are that you don’t need to make any loan payments until you decide to move out of the house and that in spite of the interest rates attached, you’ll never owe more than the value of your home.

However, there are tight restrictions and requirements with respect to who can get a reverse mortgage and what needs to be done before you receive any money. In order to qualify, you must meet an age requrement and the property must be your primary residence. You also can’t owe more money on the property than it is worth.

So how can you tell if a reverse mortgage is a good solution for you? Here are three factors you’ll want to consider.

Will You Use The Money Responsibly?

In general, the high-cost, high-risk nature of a reverse mortgage makes it ideal for people who are having trouble meeting their everyday living expenses. That means you’ll need to ensure you use the money responsibly. Good uses of reverse mortgage funds include paying living expenses and medical costs when no other options are available, and paying for emergency care after a serious injury if you’re uninsured.

Have You Exhausted All Other Avenues?

A reverse mortgage can have significant upfront costs. The fees may be higher than other loans, which means even if you don’t actually use any of the credit you obtain through a reverse mortgage, you’ll still may be paying a large sum out of pocket. Furthermore, your lender has the authority to recall the loan if you let your home insurance expire, if you fall behind on your property taxes or home maintenance, or if you spend a full year in an assisted living facility.

These risk factors mean that a reverse mortgage is typically best used as a last resort. If you have other options – for instance, if you have stocks or investments you can cash out, or if you can sell your home to your children and then rent it back from them – you’re better off going down another route. But if you’ve already exhausted all other options, a reverse mortgage may make sense.

Are You Planning To Stay In Your Home For The Foreseeable Future?

A reverse mortgage generally works best for people who intend to stay in their homes for several years. When you get a reverse mortgage, you’ll need to take out insurance to protect against the possibility of your loan balance growing beyond your property value. That means you’ll need to pay monthly insurance premiums – and if you only plan to stay in your home for a short period of time before selling, it’s very unlikely that your loan balance will grow beyond the value of your home.

A reverse mortgage can be a convenient way to access emergency cash reserves – and when used responsibly, it’s a great tool that can help you to help you with otherwise unmanageable expenses. However, reverse mortgages can also be risky and complicated – and you’ll want to consult a professional before applying for one. Call your local mortgage expert to learn more about whether a reverse mortgage is right for you.

Setting the Record Straight: 3 Major Misconceptions About Mortgage Financing

Setting the Record Straight: 3 Major Misconceptions About Mortgage FinancingPurchasing a home is often considered an important step in one’s financial life, no matter what point you arrive at it, but there are things you should know about financing your home purchase before stepping into the fray. If you’re planning on buying a home soon and want to avoid some major missteps, here are a few tips that will set you up for success.

Taking The Lender You’re Offered

In the event that you’ve been pre-qualified for a certain amount, you’ll want to find a lender that will make the process towards a home purchase a little bit smoother. Instead of going with the first option that’s offered, do some research and come up with a shortlist of potential lenders that have good reviews and have been around the industry for a significant amount of time. The process will be a lot more comfortable if there’s someone on your side you know you can trust.

Keeping Your Credit History In The Dark

Without a doubt, the lender will be looking at your financial history in order to determine the amount of financing you will receive, but it’s still important to be prepared on your end so that you know what to expect. Start by acquiring your credit report so that you can correct any inaccuracies on it and be prepared for what this score will say about your financial viability. When it comes to the financing you’ll need down the road, the right information on your credit report will make a difference in the end result.

Forgetting About The Loan Officer

If you’ve already established who your lender will be, it’s still important to meet with the person who will be handling your loan and make sure they’re someone you can trust. Ensure that you are aware of their qualifications and that they have enough previous experience in their back pocket to provide you with insights that may come in handy. While having a reliable lender is certainly a good start, the right individual to handle your loan will be someone who is licensed and involved with a local, professional mortgage association.

All of the things involved with mortgage financing can be quite complicated, but by finding the right lender and preparing yourself for the tough financial questions, it can be a much easier experience. If you’re starting to consider your options for a home purchase, you may want to contact one of our local mortgage professionals for more information.